It is important to understand basic financial concepts in today's economic climate—from compound interest to the difference between a tax credit and a tax deduction. Unfortunately, 65% of Americans are financially illiterate and unable to manage their finances.1 Instilling basic financial lessons in kids, teens, and young adults may go a long way toward improving the financial literacy of the next generation. Here are four key points that teachers may convey in discussions about financial literacy.
Learn What You Don't Know
No one should be embarrassed about not knowing the answer to a financial question. Fortunately, with the internet at your fingertips, discovering the answer may be as simple as a Google search. However, you may need to evaluate your sources. Make sure you rely on trustworthy media outlets or reputable financial institutions. An eagerness to learn more about financial concepts may serve you well throughout your life.
More Savings May Mean More Options
Although money may not be the key to happiness, having an adequate amount of money in the bank might provide you with more options. If you know you could get by without a paycheck for a month or two, you may have more freedom to change jobs. If you have enough saved to pay off your mortgage, you may be able to retire sooner than you thought. When you create a savings plan, consider the most important options and how much you may need to save for these options.
Information Continues To Evolve
Financial literacy is not something you learn just once. As the U.S. tax code evolves and new financial products hit the market, you may need to stay informed. For instance, the Roth IRA is less than 25 years old. Someone who missed out on this development in the late 1990s could have spent years without knowing about this post-tax retirement savings option.2 Consider subscribing to financial newsletters, blogs, or magazines to ensure you are aware of any new developments.
Many personal finance strategies might be wise to follow, particularly when it comes to living within your means, setting aside funds for an emergency and saving for the future. Once you understand these concepts, it is important to remember that personal finance is based on your choices. There is not a one-size-fits-all answer.
For example, some people may be aggressive investors, putting any excess funds in the stock market while living on as little as possible. Some may prefer to keep a large amount of cash on hand and use it to pay for purchases. Others may prefer to charge all daily expenses on a credit card and pay it off once per month. No matter what approach you choose, it is important to make sure this approach works well for your individual needs and risk tolerance.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
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